Food economics holds important lessons about market power in supply and product markets, poverty and malnutrition, and farm size.
Read ‘Food Economics’, a freely available textbook, by William Masters and Amelia Finaret.
In this epsiode of VoxDevTalks, Amelia Finaret and William Masters speak to Tim Phillips about their new, open access textbook on Food Economics. This textbook, aimed at both economists and non-economists, explores economics by focusing on the demand and supply side of global food markets. After discussing the importance of accessible teaching materials, Amelia and William discuss some of the key findings from research on food economics.
The importance of food economics
Half of all child deaths are due to malnutrition of some form and there is a rising global burden of non-communicable diseases because of the food that people eat. Food economics is at the core of how these challenges can be resolved and plays an important complementary role to development economics.
Students lack information about food economics
William Masters identifies three constraints on the study of food economics that may have limited its dissemination.
- Research has become increasingly specialised and occurs where production takes place (which may be in non-urban or remote areas).
- Stagnant growth in agricultural production means jobs for undergraduates are predominantly in other fields.
- The prevalence and severity of famines has declined (and famines often arise now for political/conflict related reasons), reducing the urgency for better research on food systems.
Market structures in food systems
Supply chains in global food systems have become much more complex, leading to farmers and consumers being squeezed on both sides of the market. For example, farmers often face a small number of sellers of inputs (monopoly) and a small number of buyers of their agricultural outputs (monopsony). The Food Economics textbook explores these different market power structures, strategic interactions, and the barriers to collective action, using economic theory.
The prevalence of family farms
Farms across the world are predominantly family operations. As a result of being family operations, farms in low and high-income countries both exist without outside investors and likely will have no full-time year-round employees.
'90 plus percent of farmers in US, Japan, Australia, South Korea, in Africa, in South Asia are family operations. That means that they’re facing both input suppliers and product markets that have huge scale economies… both before and after the farm creating these common double-sided monopolies and monopsonies that we see in the complicated value chains.’
The issue of insurance for farmers
Insurance is an important topic within food economics in relation to agriculture and poverty. The lack of access to fairly priced insurance, in settings of high uncertainty and risk, can have significant welfare costs. Food systems require economic concepts (such as moral hazard, asymmetric information or missing markets) to explore this issue. From a global perspective, we can see stark differences between the insurance and protection offered by high-income countries' governments to farmers relative to small farmers in LMICs. This difference can have important political economy consequences.
Food consumption at different stages of development
Engel’s law is a well-known economic concept whereby higher-income people spend a smaller fraction of income on their food. As incomes grow, overall spending on food consumption tends to increase, as expenditure on value added services around food rises and kitchen and plate waste increases. However, these effects are generally smaller than the rise in incomes, leading to a falling share of total income going towards food spending.
On the supply-side, the finite supply of land places constraints on successful farmers’ expansion and plays a role in structural transformation as a country develops.
‘A transformation out of agriculture [occurs], for the two reasons. On the demand-side Engel’s law, and on the supply-side, the fact that prosperous farmers cannot get any more land so have to wait for their neighbours to get other jobs to expand.’
The double burden of malnutrition
Malnutrition has two key aspects: undernourishment, affecting individuals or households who lack adequate nutrition, and overnutrition, where excessive consumption leads to various non-communicable diseases such as diabetes and heart disease. The latter is often linked to behavioural food choices, like present biases, and highlights how the food system has evolved; not only providing more opportunities to overeat but also creating an environment that encourages overconsumption.
Food economics and nutrition policy
‘We can do a better job of all types of policy. For humanity to keep on addressing the many challenges that we face, we need to bring science into the hands of decision-makers.’
Open access textbooks, like Food Economics, help to ensure science is accessible to policymakers. Often this type of science is out of sight and inaccessible, limiting its reach and impact. This textbook can be easily integrated into courses and is freely available online.